Archive for the ‘Fed’ Category

Geithner Plan Robs Taxpayers, Empowers Geither and Obama, May Enrich Select Firms

March 24, 2009

“Quite frankly, this amounts to robbery of the American people. I don’t think it’s going to work because I think there’ll be a lot of anger about putting the losses so much on the shoulder of the American taxpayer.”

That’s from Nobel Prize-winning economist Joseph Stiglitz.  He is also a former World Bank chief economist.

“The Geithner plan is very badly flawed,” Stiglitz said.

Under the Geithner plan, the Federal Government would offer private investors with more than 90 percent of the funds to buy the troubled or toxic assets — that’s taxpayers’ money.

If the value of the assets goes up, the private firms make a profit and the taxpayers get their costs back.

If the value of the assets goes down, the taxpayers lose.

Either way, the money gets made not by taxpayers but by private companies.

The other problem with the Geithner plan is Geithner himself.  As he said today before the House Financial Sevices Committee, he wants to have more power to step in when big non-bank financial firms are in trouble.

No one man should have that kind of power over private businesses, in our opinion, and certainly Geithner has not earned any confidence to allow us to even seriously consider the idea.

If Obama did not like Geithner’s moves into private business, his only recourse would be to fire Geithner and get a new Treasury Secretary…..

House Republican leader John Boehner told reporters the Treasury’s request for authority to shutter non-banks sounded like “an unprecedented grab of power.”

But many Democrats like the Geithner plan.

“I welcome it,” Senate Banking Committee Chairman Christopher Dodd told reporters. “We’ve got to figure out a way to deal with this.”

President Obama said on Tuesday he hopes “it doesn’t take too long to convince Congress” to approve the kind of authority Mr. Geithner and Mr. Bernanke were talking about.

Stiglitz has long called for the U.S. dollar to be replaced as the only reserve currency.

Basing a reserve system on a single currency whose strength depends on confidence its own economy is not a good basis for a global system, he says.

“We may be at the beginning of a loss of confidence (in the U.S. dollar reserve system),” he said. “I think there is support for some sort of global reserve system.” 

Stiglitz was interviewed by Reuters.

http://www.cnbc.com/id/29848741

See also:
http://news.yahoo.com/s/nm/20090
324/ts_nm/us_financial_aig

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From Geithner’s statement today:

The Administration proposes legislation to give the U.S. government the same basic set of tools for addressing financial distress at non-banks as it has in the bank context.

The proposed resolution authority would allow the government to provide financial assistance to make loans to an institution, purchase its obligations or assets, assume or guarantee its liabilities, and purchase an equity interest.

The U.S. government as a conservator or receiver would have additional powers to sell or transfer the assets or liabilities of the institution in question, renegotiate or repudiate the institution’s contracts (including with its employees), and prevent certain financial contracts with the institution from being terminated on account of the conservatorship or receivership.

This proposed legislation would fill a significant void in the current financial services regulatory structure with respect to non-bank financial institutions. Implementation would be modeled on the resolution authority that the FDIC has under current law with respect to banks.

Before taking any emergency action, the Treasury Secretary would need to determine that resolution authority is necessary upon the positive recommendations of the Federal Reserve Board and the appropriate federal regulatory agency.

Read the entire statement:
http://www.foxbusiness.com/story/marke
ts/business-leaders/read-treasury-secret
ary-tim-geithner-testimony/

Obama Wants To Take Over Companies; Complains Congress Might Take Too Long

March 24, 2009

President Barack Obama says he hopes “it doesn’t take too long” for Congress to approve new authority to oversee financial firms — and even take them over by the Federal Government if they are in economic trouble.

The president made the remark in the Oval office Tuesday afternoon, March 24, 2009.

The administration is pushing the idea of an overarching regulator, such as the Federal Reserve, to have the ability to take over nonbank financial entities whose failure could topple the entire financial system.

Congress has gotten us into trouble recently by rushing through important legislation or hearings.

The congress held no hearing on the president’s stimulus spending measure — with many member saying they didn’t have time to read it.

The stimulus assured AIG that it had the authority to pay bonuses.

Then the House last week rushed to vote a 90% tax on those same bonuses….an idea that could be unconstitutional…. and is certainly questionable….

Most fast legislation is very bad legislation, in our experience….

 Geithner Wants To Seize Troubled Businesses: “By What Authority in the Constitution?”

Obama “Strongly Approve” Number from 42% to 36% in Last 60 Days; Geithner 24% Or Less

See Michelle:
http://michellemalkin.com/2009/03/24/the-sen
ate-shows-a-little-sense-confiscatory-republica
ns-show-no-shame/

Related:
http://www.frugal-cafe.com/public_html/frugal-
blog/frugal-cafe-blogzone/2009/03/21/wait-ha
ste-made-the-mess-sen-kyl-blocks-aig-punish
ment-bill-to-allow-level-headed-review/

US President Barack Obama (R) speaks with Australian Prime Minister ... 
US President Barack Obama (R) speaks with Australian Prime Minister Kevin Rudd in the Oval Office of the White House in Washington, DC. Obama said Tuesday he hoped to partner with Rudd for “years to come” after forging a “meeting of the minds” in their first White House talks.  During this meeting, Obama told reporters, he hopes “it doesn’t take too long” for Congress to approve new authority to oversee financial firms .(AFP/Jim Watson)

Threat of inflation sky high

March 22, 2009

The Fed’s announcement last week to flood the financial markets with $1.2 trillion in new money stunned many. True, governments often print money as a cheap way to buy off their debt. Governments also find that instead of paying off their debt they can simply reduce the value of the currency so much that earlier debts are not worth anything. But the shear size of the current change to the world’s preeminent currency is unprecedented.

Washington Times
Editorial

More money means that each dollar falls in value and can purchase less than it did previously. Think of it this way: If the number of apples suddenly doubled tomorrow, what would happen to the price of each apple? It would fall. Same with dollars, whether American or Zimbabwean, where the current inflation rate is 230 million percent annually.

The size of this $1.2 trillion increase is breathtaking, and the U.S. monetary base has already more than doubled so far, from $800 billion to $1.7 trillion. One normally needs a microscope to see past yearly changes in the money base, and the current change already jumps off of any chart – look at the one on the right from the St. Louis Federal Reserve Bank showing the blastoff. As the chart illustrates, even before the last infusion of money, we have already seen a huge increase in the money supply (M1) this year.

Devaluating our currency and our debt is a dangerous game. It may cure short-term ills but, in the long run, countries won’t want to hold U.S. government bonds or other investments if they think they risk losing a lot of money this way.

With the Fed’s announcement, the value of the dollar has started dropping precipitously. On March 12 it took $1.27 to buy a Euro. By last Thursday it took about $1.37. It is surprising that the size of the drop hasn’t been even larger.

The Fed seems to think that it is battling what might be a massive deflation and wants to protect against the unemployment that might result from sticky wages and prices. But instead of deflation, these huge increases in the money worry us that the opposite, a hyper-inflation, will be more likely the case and there will be real costs. And while this huge increase in money will undoubtedly be the one thing that the federal government has done that will lower unemployment, it is just the wrong way to lower it.

As Milton Friedman was well known for pointing out, inflation will cause some workers to think some jobs are offering higher real wages than they actually are. The problem is that once these workers realize their mistake – that the slightly higher wages they accepted were eaten up by inflation and did not represent a real increase – they will leave the jobs they took hastily to look for positions offering a real increase, ones they should have pursued all along. It is a solution, but a false one.

There are other bad consequences from this huge increase in the money supply. Interest rates will go up, simply because lenders will have to be compensated for the fact that any money that they get back a year from now will be worth less because of inflation. With the rates up, investments will fall.

However, the interest rate will actually go up by more than the inflation rate because our tax rules don’t adjust taxes on interest rates for inflation. If inflation goes from zero to 10 percent, the interest rate doesn’t simply go from, say, 5 percent to 15 percent – it has to go up by more than that to keep the after-tax return to investors the same. In fact, if someone is paying a 50 percent tax rate, increasing inflation from 0 to 10 percent would require increasing the interest rate to 25 percent to keep even!

This huge increase in the money supply may provide a short gain, but the long term costs are going to be huge. The notion that the Federal Reserve is capable of smoothing out the impact that such a change has on inflation is hubris at its worse. The Fed has a difficult enough job controlling inflation under the best of circumstances, and the Fed has never had to be asked to control this type of increase in the monetary base before.

President’s Economic Team in Trouble: Especially Geithner

March 20, 2009

Last November, all we heard about was the “brilliant,” “sharp,” “energetic,” and “visionary” economic team of Barack Obama.

We had hope.

But then the president himself exhibeted a loss of hope or no hope.  We needed the stimulus and we needed it now.  No need to read it “lawmakers,” we’ll get what’s needed in there.

And apparently, Tim Geithner’s Treasury got what it wanted into the stimulus: including the AIG bonus green light.

We had hope again, and trust.

The president said congress needed to pass the stimulus or face “catastrophe.”

Well, now we have the stimulus and the congress is a catastrophe.  And the economy is only holding on to life — despite the stimulus.

Now all that has crashed to earth.

Now, suddenly, the president is saying “It’s not so bad; have confidene.”

Well, in what should we have confidence, exactly?  In whom?

The president has lost control of the message and the agenda.  He went on Jay Leno last night and looked like a wash out from the Special Olympics.  But he did display loyalty, especially to Tim Geithner.

This is sounding like, “Brownie, you’re doing a heck of a job.”

Where did the “brilliant,” “sharp,” “energetic,” and “visionary” go?  Down the drain with the hope, apparently.

Fire Geithner, Mister President, and re-focus on the economy.

In the Clinton years we said, “It’s the economy, stupid.”

That could still work….

The president has scheduled a major address for next Tuesday.  That will be about not the “State of the Union” but the state of March Madness.

And that doesn’t mean basketball….
.
http://alaskakid.wordpress.com/200
8/11/24/for-the-record-and-to-be-
fair-praise-pours-in-for-obama-eco
nomic-team/

*********************

Michelle Malkin Says Geithner Can’t Get It Right
http://michellemalkin.com/2009/03/20/
geithner-cant-get-taxes-straight-cant-get-dates-straight/

On Geithner: there is a growing sound of voices calling for his resignation, yet at Treasury there are still something like 17 top positions vacant.  Last night on the Fox News Channel, Hannity interviewed Fred Thompson who had doubts that the president could find someone with the far left pedigre the president wants, the financial skills reuired and a person with the willingness to serve as Treasury Secretary in this tough environment…..

Thompson seemed to think we were “stuck” with Geithner.  But we think the president has to get rid of geithner the tar babby before the president himself starts to suffer lower poll numbers from this appointment …..
Confidence is draining from the American voter faster that the president can patch the leaks.  Going after the AIG bonuses is understandable and right; but that is only a slight drip and not even a trickle.

The deluge in spending from the stimulus and the omnibus: to the tune of $1 billion per hour in this president’s first 50 days, is staggering, along with the interest payments and national debt.

But it isn’t  deluge of water.  It is a deluge of money and confidence and political capital: the lifeblood of a president.

And Obama’s cohorts in all this excite no confidence at all: Geithner, Pelosi, Dodd, Barney Frank, Harry Reid and the rest.

The only one the president can fire is Geithner….

And that may be enough to boost confidence if he has the right replacement….

Defining Moment for Obama’s Treasury Secretary

***************************

Many People in Government Knew About AIG Bonuses Weeks Ago

By EDMUND L. ANDREWS and JACKIE CALMES
The New York Times

The question was direct and prescient. Representative Joseph Crowley, Democrat of New York, asked the Treasury secretary in an open hearing what could be done to stop American International Group from paying $165 million in bonuses to hundreds of employees in the very unit that had nearly destroyed the company.

Timothy F. Geithner, the Treasury secretary, responded by saying that executive pay in the financial industry had gotten “out of whack” in recent years, and pledged to crack down on exorbitant pay at companies like A.I.G. that were being bailed out with billons of taxpayer dollars.

The exchange took place before the House Ways and Means Committee on March 3 — one week before Mr. Geithner claims he first learned that the failed insurance company was about to pay a round of bonuses that have since caused a political uproar.

A Treasury spokesman, Isaac Baker, said in a statement on Thursday night, “Although Congressman Crowley raised the issue of the bonuses two weeks ago, Secretary Geithner was not aware of the timing or full extent of the contractual retention payments or the other bonus programs until his staff brought them to his attention on March 10.”

Mr. Baker said that after Mr. Geithner had been briefed on the bonuses, he called Edward M. Liddy, the chief executive of A.I.G., and “insisted that they be renegotiated and restructured, in light of the extraordinary assistance being provided by taxpayers.”

Mr. Baker added that Mr. Geithner “takes full responsibility for not being aware of these programs before last week.”

Interviews with senior Federal Reserve and Treasury officials, as well as members of Congress, leave little doubt that the bonus program was a disaster hiding in plain sight. Mr. Geithner is not the only one who appears not to have understood the populist fury the bonuses would set off.

Career staff officials at the Treasury, Fed and Federal Reserve Bank of New York exchanged e-mail messages about the A.I.G. bonus program as early as late February, according to a person familiar with the matter. A.I.G. itself revealed the bonus plan in regulatory filings last September.

Read the rest:
http://www.nytimes.com/2009/0
3/20/business/20bonus.html?_r=1&hp

Fed to pump another $1 trillion into U.S. economy “from thin air”

March 19, 2009

Expect elegant Ben Bernanke on Jay Leno before long.  He’s the coolest Obama spokesman on the economy — as he proved Sunday on “60 Minutes.”

But he knew about the AIG bonus money last year and he hasn’t said a word.

And four years ago, Ben Bernanke famously identified the huge influx of foreign currency as a sign that America was about to go over an economic ledge — but he didn’t understand what that might mean.

As FinancialPost.com reports:

[The] Federal Reserve chairman delivered an elegant mea culpa for pinpointing the massive capital inflows as a force lifting the U.S. economy, but failing to stop Americans from going on a destructive spending spree.

“The global imbalances were the joint responsibility of the United States and our trading partners, and although the topic was a perennial one at international conferences, we collectively did not do enough to reduce those imbalances,” the Fed chief told the Council on Foreign Relations.

Then yesterday Bernanke released $1 trillion into the U.S. economy “out of thin air.”

We haven’t created more jobs or more wealth but we do have more money now — which will usually start inflation and an economic roller coaster ride….

Before long the only financial guys getting bonuses will be Chinese….

Related:
http://www.financialpost.com/persona
l-finance/wealthy-boomer/story.html
?id=1374217

**************************

The Federal Reserve sharply stepped up its efforts to bolster the economy on Wednesday, announcing that it would pump an extra $1 trillion into the financial system by purchasing Treasury bonds and mortgage securities.

By Edmund L. Andrews
International Herald Tribune

Having already reduced the key interest rate it controls nearly to zero, the central bank has increasingly turned to alternatives like buying securities as a way of getting more dollars into the economy, a tactic that amounts to creating vast new sums of money out of thin air. But the moves on Wednesday were its biggest yet, almost doubling all of the Fed’s measures in the last year.

The action makes the Fed a buyer of long-term government bonds rather than the short-term debt that it typically buys and sells to help control the money supply.

The idea was to encourage more economic activity by lowering interest rates, including those on home loans, and to help the financial system as it struggles under the crushing weight of bad loans and poor investments.

Investors responded with surprise and enthusiasm. The Dow Jones industrial average, which had been down about 50 points just before the announcement, jumped immediately and ended the day up almost 91 points at 7,486.58. Yields on long-term Treasury bonds dropped markedly, and analysts predicted that interest rates on fixed-rate mortgages would soon drop below 5 percent.

U.S. Federal Reserve Chairman Ben Bernanke speaks at the Council on Foreign Relations in Washington March 10, 2009.

U.S. Federal Reserve Chairman Ben Bernanke speaks at the Council on Foreign Relations in Washington March 10, 2009.  Reuters/Yuri Gripas
.

But there were also clear indications that the Fed was taking risks that could dilute the value of the dollar and set the stage for future inflation. Gold prices rose $26.60 an ounce, hitting $942, a sign of declining confidence in the dollar. The dollar, which had been losing value in recent weeks to the euro and the yen, dropped sharply again on Wednesday.

In its announcement, the central bank said that the United States remained in a severe recession and listed its continuing woes, from job losses and lost housing wealth to falling exports as a result of the worldwide economic slowdown.

“In these circumstances, the Federal Reserve will employ all available tools to promote economic recovery and to preserve price stability,” the central bank said.

Read the rest:
http://www.iht.com/articles/2
009/03/18/business/fed.php

http://michellemalkin.com/20
09/03/19/the-david-copperfi
eld-school-of-economic-recovery/

Obama, Congress, Treasury, Fed: Shameful Mismanagement of Your Money, Recovery

March 19, 2009

If you are a fan of movies featuring a hero who steps forward to add courage, virtue and good thinking to a disaster to make things right; the AIG bonus flap will cause you disappointment and worry.

There are no leading men or heroes here.  Just bad actors.

And the really worrisome point is this: the AIG bonus flap is about is just $165 million out of trillions of dollars now flowing through the decision makers in the White House, Congress, the Treasury and Federal Reserve.

The outrage expressed over the AIG bonuses is like being worried about one molecule on an elephant standing on your food and dying of cancer without  medical attention.

The elephant is the economy and the poorly managed recovery so far.  Money has been hemorrhaging  out of the taxpayers’ coffers and into all kinds of hands you would never approve of — for months — and the president is preaching “transparency.”

The courage, virtue and good thinking so far has apparently only been delivered during carefully scripted TV appearances — and now even Obama and Biden are not allowed out of their bathrooms without telepromters.

Obama, Pelosi: Anything to Win

The root cause of the AIG flap?  The quickly executed and poorly cobbled together stimulus bill for starters.  Nancy Pelosi’s stimulus bill.  Chris Dodd, with help, undoubtedly, inserted language legalizing just the kind of bonuses AIG paid — so everyone who expressed “outrage” from the president on down is to blame for rushing through congress a hash bill of over $700 billion — and then blaming a company that thought they were doing the right thing, the legal thing, the thing they told the Fed about months ago.

And the president is going through the books line by line….

No “lawmaker” admitted to even reading the stimulus before making it a law: which should sound alarm bells that the White House the Congress and all else involved were into a stampede of good intentions which seldom yields good law.  Even the lobbyists couldn’t keep up with the stimulus….

Then add poor performance on the part of those responsible for oversight.

What we have is a witches brew of White House, Congress, Treasury and Fed.

The problem is Obama, Nancy Pelosi, Harry Reid, Tim Geithner, Ben Bernanke and their many munchkins — not mean old AIG executives and lawyers and Wall Street — this time.

Politically, if history is any guide, “No Drama Obama” will continue to receive love and support from an adoring public and media: but he’s the one that slammed the stimulus down the throats of congress and he’s the one that picked Tim Geithner.

The president didn’t create the crisis but he fueled it and pushed hard for speedy action — not well thought out legislation.

We fault the president for not speaking the truth on this, which he is often not very good at.

But we still have hope, which the president often urges, that Barack Obama will come clean with the American people and tell them that the federal government screwed up and can, will and should do a lot better.

By firing Geithner the president can go a long way in quieting this storm.  Standing by this Treasury Secretary just leaves a giant hunk of doubt, suspicion and guilt in the middle of the “recovery” that the president has said requires confidence.

And that doubt is now the elephant in the room.

John E. Carey
Wakefield Chapel, Virginia

Related:
In AIG flap, it’s not just about bonuses anymore

Defining Moment for Obama’s Treasury Secretary

Fed Failed to Tell Obama About AIG Bonuses For Months

Robert Reich: AIG,Transparency, Treasury, Fed: Lost?

http://michellemalkin.com/2009/03/
19/where-in-the-world-146/

Obama, Congress, Treasury, Fed: Shameful Mismanagement of Your Money, Recovery

Fed Failed to Tell Obama About AIG Bonuses For Months

“Dodd The Dodge” — Senator Weasels Away The Truth; And Not Artfully

Dodd Allowed AIG To Thrive in His State, Approved Bonuses: Now Throws Them Under The Bus

Amid AIG Furor, Dodd Tries to Undo Bonus Protections He and Geithner Put In 

Did Obama White House Fuel AIG Bonus Mess To Enact Tougher Rules With Public Support, “Outrage”?

http://cinie.wordpress.com/20
09/03/19/psssst-theyre-all-lying/

Fed Failed to Tell Obama About AIG Bonuses For Months

March 19, 2009

Federal Reserve officials knew for months about bonuses at American International Group but failed to tell the Obama administration, according to government and company officials, exposing problems in a relationship that is vital to addressing the financial crisis.

By David Cho and Michael D. Shear
The Washington Post
As pressure mounted on AIG employees to return the bonuses, new details emerged yesterday about what the Fed, the Treasury Department and the White House knew regarding the payments and when. AIG executives said the Fed was informed three months ago by the company that it would pay $165 million by March 15 to employees working at its most troubled division. The Treasury and White House said they learned of the payments from Fed officials only days before they were due.

Close coordination between the Fed and the administration is now more important than ever as they near the launch of two signature programs to rescue the financial system, which together could reach $2 trillion and are aimed at reviving consumer lending and purchasing soured assets and loans from ailing banks.

Read the rest:
http://www.washingtonpost.com/wp
-dyn/content/article/2009/03/18/
AR2009031804210.html?hpid=topnews

For Obama, Crisis is a Really Good Thing

March 16, 2009

After Pearl Harbor, Franklin Roosevelt didn’t also declare a crisis in health care, the environment, education, our energy supply and other fibers of the national fabric.

Obama did.

Suddenly, when faced with a huge financial and economic crisis, we needed a total overhaul of health care in order to survive.  Health care costs are the reason the economy is a mess.

Same for education: without a better (and much more costly federalized) system, our future is bleak.

“Never waste a good crisis” has become the semi-official motto of the Obama administration.

Rahm Emanuel and Team Obama say: Open that can of worms.

But when Obama’s gloom and doom about the economy prompted others to say maybe we should prioritize and focus more on the economy and wait on health care and these other projects, President Obama now says the crisis is “not as bad as we think.”

He even trotted out Rosy Romer and a bunch of others on the Sunday talk shows to tell us so.

So lets wait.  Lets’s wait to see if the economy is improving before we bet the kids’ future by spending all the borrowed money we can muster to fix health care and everything else.

If Bernanke is right and the rebound is ahead this year: show me.

Or tell me how, when and by whom this humongous tax and debt bill will be repaid?

The thing about a crisis is: it really can be a can of worms if it is handled without measured steps.  By opening the current economic can of worms with a full throttle assault on America’s former self and proposing what is really a wholesale change to socialism, the president may have bitten off too many worms at once.

The “Tea Party Protests” are just the first sign of trouble….

http://michellemalkin.com/2009/03/1
6/no-duh-white-house-worried-abou
t-bailout-backlash/

Socialist Former CNN Reporter Wins Election in El Salvador; “Yes We Could”

Sun Setting On American Superpower?

On Bernanke: Recession Will End This Year
http://news.yahoo.com/s/ap/20090
316/ap_on_bi_ge/bernanke60_minutes

******

Washington Times Editorial:
Crisis is Obama’s Mantra
http://www.washingtontimes.com/
news/2009/mar/16/obamanomics/

Obama Can’t Govern Until He Kills More Positions
http://online.wsj.com/article/SB12
3716137102835601.html

 Obama’s TV Talking Heads: Sunday Surrogate Disaster

U.S. Taxpayers Risk $9.7 Trillion on Bailouts as Senate Votes

February 9, 2009

The stimulus package the U.S. Congress is completing would raise the government’s commitment to solving the financial crisis to $9.7 trillion, enough to pay off more than 90 percent of the nation’s home mortgages.

By Mark Pittman and Bob Ivry
Bloomberg
.
The Federal Reserve, Treasury Department and Federal Deposit Insurance Corporation have lent or spent almost $3 trillion over the past two years and pledged to provide up to $5.7 trillion more if needed. The total already tapped has decreased about 1 percent since November, mostly because foreign central banks are using fewer dollars in currency-exchange agreements called swaps. The Senate is to vote early this week on a stimulus package totaling at least $780 billion that President Barack Obama says is needed to avert a deeper recession. That measure would need to be reconciled with an $819 billion plan the House approved last month.

Only the stimulus package to be approved this week, the $700 billion Troubled Asset Relief Program passed four months ago and $168 billion in tax cuts and rebates approved in 2008 have been voted on by lawmakers. The remaining $8 trillion in commitments are lending programs and guarantees, almost all under the authority of the Fed and the FDIC. The recipients’ names have not been disclosed.

“We’ve seen money go out the back door of this government unlike any time in the history of our country,” Senator Byron Dorgan, a North Dakota Democrat, said on the Senate floor Feb. 3. “Nobody knows what went out of the Federal Reserve Board, to whom and for what purpose. How much from the FDIC? How much from TARP? When? Why?”

Read the rest:
http://www.bloomberg.com/apps/news
?pid=washingtonstory&sid=aGq2B3XeGKok

Fed’s Bernanke: Auto Makers Have Insufficient Collateral To Assure Repayment

December 9, 2008

Federal Reserve Chairman Ben Bernanke suggested Tuesday that he would be reluctant to use the central bank’s emergency lending program to help struggling U.S. auto companies.

In a letter to Senate Banking Committee Chairman Christopher Dodd, D-Conn., Bernanke wrote that any decision about whether to provide financial aid to Detroit is best left to Congress.

US Federal Reserve Bank Chairman Ben Bernanke pauses during ... 
Federal Reserve Chairman Ben Bernanke

Congress and the White House are pushing to clear the final obstacles to a $15 billion bailout of the auto industry, seeking agreement by the end of the day followed by swift passage.

The chief executives of Chrysler LLC, General Motors Corp. and Ford Motor Co. last week returned to Capitol Hill to again ask lawmakers for billions in emergency aid.

By JEANNINE AVERSA, AP Economics Writer

“The Federal Reserve would be extremely reluctant to extend credit where Congress has actively considered providing assistance, but after due consideration, has decided not to act,” Bernanke wrote Dodd. The letter was dated Dec. 5 and released Tuesday.

A key consideration in letting an auto company draw emergency cash loans from the Fed is whether the company has sufficient collateral or other security to ensure repayment of the loan. “It is unclear whether the auto manufacturers have unencumbered assets of sufficient amount and quality to meet this requirement,” Bernanke wrote.

Read the rest:
http://news.yahoo.com/s/ap/20081209/ap_on_bi_ge/bernanke_autos